The Question
My husband and I are now retired, and it would seem entering the next stage of our careers – aka running The Bank of Mum and Dad! We have two sons, both are keen to buy their own homes but are they struggling to raise deposits – so we would like to help them.
To do this we have decided to dip into some of the money locked into our home. Our house is worth approximately £800,000. We have savings but, because savings rates are so good at the moment, we are not in a rush to move this money. We’ll need £100k per son – ie £200k in total from our home. The money will be a gift.
Our questions are – can we use our equity for this purpose? If so, are there any tax considerations, for example stamp duty surcharges or inheritance tax etc?
Mark’s Answer
Thank you for your question, and I did smile when I read that you are now ‘entering the next stage of your careers’. As a parent myself, I can understand that you want to help your children buy their own homes, as giving them the capital for a deposit can help them to secure a mortgage, reduce the term, or secure a competitive interest rate.
Furthermore, I can understand why you may be reluctant to use your savings as the interest you are earning may be supplementing your income in retirement, or your savings are earmarked for your own retirement plans.
Here at Equity Release Supermarket our independent expert advisers are receiving many enquiries from parents who are looking to use the equity in their homes to transfer some of their wealth, at a time when their children most need capital, rather than waiting for their long-term future inheritance.
One of the main considerations is that if you do decide to gift capital to your children, you would not then be able to use these funds for your requirements in the future including paying for long-term care.
I can confirm that there is no stamp duty or surcharges to pay on the gift to your children, and no tax to pay either. However, I am not an Inheritance Tax Specialist and there could be an inheritance tax charge in the future depending on how long you live for following the gift.
As I am not authorised to provide Inheritance tax advice, I asked a specialist who confirmed, that subject to early planning you can gift your children as much money as you like while you are alive, and this is called a Potentially Exempt Transfer.
Luckily, the money from equity release counts as one of these gifts, as the money gifted becomes exempt from inheritance tax, provided that the person making the gift lives for seven years afterwards.
There are some rules you need to know including if you gift money from equity release and die within three years, then the gift will be charged at a 40% tax rate. Any gifts made three to seven years before your death will then be taxed on a ‘taper relief’.
For a clear picture of your personal circumstances, I would recommend that you discuss Inheritance Tax and Inheritance planning with a suitably qualified adviser.
I would also suggest that you talk to one of our friendly, expert, whole-of-market advisers who will discuss the ways in which you can raise capital for your objectives, including downsizing to release equity naturally, Lifetime mortgages where you have flexibility and choice with making payments, Retirement Interest Only mortgages with fixed payments, or Home Reversion plans where you sell a share of your home in return for a cash lump sum.
You have nothing to lose by taking advice at this stage because our advice fee of £1,495 is not paid until after your application completes, and if you decide not to pursue equity release our advisers will not charge you.
Meet our expert…
Mark Gregory, founder and CEO of Equity Release Supermarket, is here to answer your questions. Mark is an adviser himself with over 20 years equity release experience.
He launched Equity Release Supermarket 10 years ago and it has grown to become one of the UK’s leading equity release specialists.
Email kate.saines@emap.com to ask Mark a question
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